Suppose fed creates excess reserves in banking system

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1. Suppose the Fed creates excess reserves in the banking system by buying government bonds, but banks do not make more loans because economic conditions are bad. This situation is a problem of:

1. Cyclical asymmetry.

2. A restrictive money policy.

3. The net export effect.

4. A decrease in the Federal funds rate.

2. A Federal Reserve official notes: "A restrictive monetary policy can force a contraction of the money supply however an expansionary monetary policy might not achieve an expansion of the economy." The official has described the problem of the:

1. Change in taxes on monetary policy.

2. Inflexibility of monetary policy tools.

3. Cyclical asymmetry of monetary policy.

4. Political acceptability of monetary policy.

Reference no: EM13686087

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